Opinion
00C-09-038-RFS.
Decided August 2, 2004.
Eric C. Howard, Esquire, Wilson, Halbrook Bayard, Georgetown, DE.
John A. Sergovic, Esquire, Sergovic, Ellis Shirey, P.A., Georgetown, DE.
Dear Counsel:
The plaintiff, Association of Owners of Gull Point Condominiums, Inc. ("Gull Point") has brought a declaratory judgment action against defendant, Utility Systems, Inc. ("Utility"). A bench trial was held on May 20, 2004, and this is the Court's decision.
BACKGROUND
Gull Point represents 166 unit owners of a condominium regime in Sussex County. Utility supplies them with sewer disposal services. The primary issue concerns whether an agreement for sewage disposal services dated in 1984 with a renewal option (hereafter "the agreement") is void by reason of the rule against perpetuities. Before trial, Gull Point withdrew a claim of ownership over the sewer system. Further, Gull Point sought to prevent Utilities from assigning the agreement as a personal services contract. Subsequently, Utilities abandoned this effort, and this aspect of the dispute is moot.
Questions
1. Does Gull Point have standing to sue?
2. Does the rule against perpetuities apply to the agreement and its renewal option?
DISCUSSION
Utility argues Gull Point does not have standing to maintain this suit. This concept involves the right of a litigant to use a court's jurisdiction for relief and is concerned "only with the question of who is entitled to mount a legal challenge." Stuart Kingston, Inc., v. Robinson, 596 A.2d 1378, 1382 (Del. 1991). Homeowner Associations have standing to enforce claims of its members over common areas and elements of a condo minium regime. Council of Unit Owners v. Carl M. Freeman Assoc., 531 A.2d 1217 (Del.Super. 1987). The individual members are bound by any judgment litigated through the association which represents the m. Id. at 1221.Gull Point is the successor in interest to the corporate developer that executed the agreement and easement to Utility. The interpretation of these documents directly impacts Gull Point and its members. It would affect how the operation of sewer disposal services should be and how Utility should use the common elements for which Gull Point has oversight responsibility. If a non suit were entered on this basis, Gull Point would be directly damaged. It is the servient owner of the easement; It would not be able to fulfill its responsibilities; the documents could never then be interrupted, enforced or modified as may be necessary to assure proper service and use of the common property. Giving consideration to these points, Gull Point has standing to maintain this action and is the real party in interest.
Concerning the perpetuities question, the law on this subject was succinctly stated in Robinson, 596 A.2d at 1383 as follows:
The rule against perpetuities provides that "no interest is good unless it vests, if at all, not later than twenty-one years after some life in being at the creation of the interest. . . . The rule against perpetuities has long been accepted as part of the common law of Delaware as a principle grounded in the public policy against restricting the alienability of land and interests in land . . .
Because it exists perpetually, a corporation cannot be used as a measuring life for the purposes of the rule . . .
With respect to the agreement, paragraph 6 provides:
"Utility shall have the exclusive right to provide sewage disposal services to the DEVELOPMENT for an initial term of twenty (20) years; provided however, that this agreement shall be renewed on a year to year basis thereafter at the exclusive option of Utility."
These terms are straightforward. The 20 year term is subject to annual renewals. The agreement is for services and does not create an interest in land For purposes of discussion, should the agreement be viewed as creating a future interest, there still would be no violation. The interest simply vested in 2004 within the 21 year period. Further, a fixed term of years for the vesting of an interest satisfies the rule where corporations are concerned, and a natural life is not available to measure the period. See Pathmark Stores, Inc. v. 3821 Assoc., 663 A.2d 1189, 1192 (Del.Ch. 1995) (a thirty year option term to purchase property between corporations did not violate rule against perpetuities).
The existence of the easement providing access to Utility to build, maintain, and operate the system does not change the result. Under paragraphs 1 and 4, the easement is permanent and runs with the land The interest is presently vested, and it is not a perpetuities problem. See 61 Am. Jur. 2d Perpetuities and Restraints on Alienation § 47 (2002); 25 Am Jur. 2d Easements and Licenses in Real Property § 108 (1996).
A Colorado decision provided helpful insight on this subject. It addressed the subject of the perpetual renewal of an easement and license. The agreement in that case involved an easement to lay pipeline for the purpose of transporting sewage which was renewable at the end of 3 years for 3-year periods and that would "extend to and be binding upon the heirs, personal representatives, successors and assignees." Carlson v. Bold Petroleum, Inc., 996 P.2d 751, 752 (Colo.Ct.App. 2000). The Court found that the easement rights, including the options, were vested at the time of execution of the original agreement so that the rule against perpetuities did not apply to the options. The easement was considered to be perpetual and not limited in duration by the options. "We are aware of no prohibition against parties providing such multiple renewals of easement rights. Indeed, there is nothing either improper or unusual about an easement's being of a perpetual duration." Id. at 753.
Cases dealing with the treatment of perpetual renewals of lease are also instructive. An option to renew is generally classified as a presently vested right, vesting at the time of creation of the lease. In Fisher v. Parsons, 29 Cal. Rptr. 210, 215-16 (Cal.Ct.App. 1963), the court stated, "A lease which becomes immediately effective vests in all respects at that time, and rights under it, though accessible in the future, do not have the characteristics of a contingent on future estate . . . This principle is made plain by authorities dealing with a right of perpetual renewal." See also Lloyd's Estate v. Mullen Tractor Equipment Co., 4 So.2d 282, 285 (Miss. 1941) quoting John C. Gray, The Rule Against Perpetuities § 202 (3d ed. 1915) ("the covenant to renew is part of the lessee's present interest").
The policy reasons for the rule assure that land is not frozen in place, and family transfers of property should be restricted only for reasonable periods of time. Pathmark Stores, Inc., 663 A.2d at 1192. Moreover, property should be kept in a position to meet changing conditions encountered by the present generation. See Restatement (second) of Prop: Donative Transfers § .1, introductory cmt. (1983).
Applying these principles, the option and agreement involve a personal services contract, are not real estate interests, and do not involve the rule. In any event, the option is part of the agreement's presently vested interest. Likewise, the easement is already vested. These interests we re established well before the formation of Gull Point; every unit owner and Gull Point had notice of them; each owner may convey property; the development requires sewer service; and the agreement gives the utility company necessary flexibility to plan for the future. The documents reflected a bargain negotiated between two commercial entities to provide for this vital service in the development of the community.
CONCLUSION
Therefore, judgment is entered in favor of defendant and against plaintiff together with costs. At trial, the Court ruled that the complaint should have been amended a second time to permit additional relief. Nothing in that ruling and nothing in this judgment shall have collateral estoppel, issue preclusion or a res judicata effect should plaintiff hereafter claim that past or future sewer charges were unreasonable or were not made in good faith. The plaintiff is not precluded from challenging the agreement and/or easement on another legal or equitable basis. The only determination made here concerns the rule against perpetuities.